An upcoming auction of State sugar reserves is expected to have immediate impact on the soaring sugar prices in China, but the effect is unlikely to last as the country's increasing sweet tooth still outpaces production.

About 180,000 tons of State-reserved product sugar will be auctioned soon in a bid to lower the rocketing sugar prices, said an official with the Ministry of Commerce in an interview.

"The date of auction has not been decided but we will put them into the market as soon as possible after the raw sugar is processed into product sugar," said the official, who works at the ministry's department of market operation regulation.

The ministry and the National Development and Reform Commission issued a document last Tuesday, deciding to process some State raw sugar reserves into product sugar as quickly as possible for sale on the market.

The process is expected to be completed in one month.

Some 100,000 tons of sugar will be auctioned first and the rest will be auctioned based on market reactions, said the Ministry of Commerce official.

The sugar prices in China's main sugar-producing areas rose by 60 per cent, or 1,000 yuan (US$123), in November compared with the same period of last year.

The official said the recent sugar price surge is partly attributed to delays in the sugarcane pressing time in South China for the 2005 to 2006 sugar-making season.

This triggered market speculation and sugar producers' unwillingness to sell their products, the official said.

The country's sugar-crushing season starts when farmers begin harvesting their crops in October and usually ends in April.

Sugar makers typically begin the crushing in November, but this year many have delayed the process until this month.

"As sugar production has entered the peak period, the tight supply on the market is temporary," the official said, adding the auction would help ease the temporary shortage.

On Monday, sugar prices dipped by 1-1.6 per cent from last week, due to news that the ministry decided to find factories to process the raw sugar into produced sugar.

Analysts say that although the auction will have immediate effect to cap the rising trend, sugar prices will continue running at a relatively high level this year because of the increasing demand.

Consumption of the sugar will reach at least 11 million tons this year, said Ding Haijun, a sugar futures analyst from the China International Futures Co.

But sugar output will be short of this, probably only ranging between 9.8 to 10 million tons, he added.

In this type of situation, China usually imports sugar to fill the gap or auctions State reserves when the sugar prices were too high.

Last year, a total of 500,000 tons of sugar were imported.

Ding estimated that the domestic sugar price in 2006 will fluctuate between 3,600 and 4,000 yuan (US$444 to US$494) per ton.

But world sugar prices may get even higher as a result of record gasoline prices.

Brazil, the world's largest sugar exporter, may use more sugar cane to produce ethanol, a type of alcohol distilled from sugar cane juice which can substitute gasoline when running cars.

A recent report from the National Development and Reform Commission also predicted China's sugar consumption will continue to rise in the next five to ten years and domestic supply will be unable to meet the increased demand.

Source: China Daily